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A Taxing Situation
by Ron Davis

A high tenant-vacancy rate has not helped the owners of a Michigan shopping center get a break on their property taxes.

The shopping center is Pipestone Plaza in Benton, and the owners have hoped that the loss of some major tenants–including a Kmart operation–would influence local assessors in valuing the property. Despite suffering an overall 77 percent vacancy rate, however, the center’s owners received an assessment based on a property value of $5,337,400.

The shopping center’s owners protested. They asserted that the assessed value of the property exceeds 50 percent of the true cash value. But a tax tribunal, after reviewing the matter, agreed with local assessors. The tribunal found that at the time of the assessment the overall shopping center occupancy rate in the area surrounding Pipestone Plaza was 10 percent and that Pipestone Plaza’s vacancy problem was not due to any defects in the property itself.

On appeal to Michigan’s courts, the center’s owners argued that the tax tribunal erred. They contended that the valuation used faulty methodology by failing to consider the actual vacancy rate of the property.

In Michigan, however, the courts cannot reverse a tax tribunal’s fact findings unless the tribunal did not support those findings with competent, material, and substantial evidence.

A Michigan appellate court, unable to detect any problems with the tax tribunal’s findings, agreed with the tax assessors, explaining, “The gist of the center owners’ argument is that the true cash value of the property could not be determined without taking the actual vacancy rate into account. We are not persuaded that the methodology used here was improper. There was testimony that the Pipestone area was surveyed and that the occupancy rate was 10 percent, and, more specifically, that an expert made an investigation of potential tenants for the vacant space.”

Concluded the judges, “There simply was no evidence that the actual vacancy rate was due to some feature of the property, rather than Kmart’s departure.” (Capco 1998-D7 Pipestone, LLC v. Benton Charter Township, 2007 WL 3826751 [Mich.App.])

Decision: January 2007
Published: February 2007



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